AT&T Inc. (T), Finisar Corporation (FNSR): Consider Buying Ciena Corporation (CIEN) if It Misses Earnings

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Communications equipment maker, Ciena Corporation (NASDAQ:CIEN), has been impressive in 2013 so far. The company trumped estimates on both earnings reports this year, posting profits while the Street originally expected losses.

Ciena Corporation (NASDAQ:CIEN) has gained 30% this year on the back of impressive results and solid prospects. But will the company be able to keep up its momentum after the upcoming third-quarter results on Sept. 4?

Ciena Corporation (NASDAQ:CIEN)

Great expectations
Analysts, according to Yahoo! Finance, are expecting Ciena to post revenue of $533 million. The company should have no difficulty meeting those estimates since its own guidance calls for revenue between $515 million-$545 million.

Given the fact that Ciena Corporation (NASDAQ:CIEN)’s backlog grew in the previous quarter, and order inflow remained strong, a revenue beat remains a possibility.

Ciena delivered huge positive earnings surprises over the past two quarters. However, the earnings forecast for the third quarter of $0.16 per share is way above the loss of $0.04 per share last year and $0.02 in the second quarter.

The earnings outlook seems quite optimistic. Ciena Corporation (NASDAQ:CIEN) expected its gross margin to remain in the low-40s, which would be in line with the 42.5% gross margin posted in the second quarter. Operating expense is also expected to remain flat from the second quarter. Since revenue is expected to grow just 4.3% on a sequential basis, Ciena might find it difficult to satisfy the highly optimistic bottom line estimate.

But, if Ciena misses on the bottom line and the stock plunges, opportunistic investors should consider adding to their long positions since prospects look bright.

Think long term
Ciena Corporation (NASDAQ:CIEN)’s customer base is very diverse. The company has more than 1,000 customers and the majority of its top 20 customers buy multiple products spread across Ciena Corporation (NASDAQ:CIEN)’s portfolio. Management stated on the previous conference call that the multi-year infrastructure upgrade cycle has begun. Increases in data consumption, mobile growth, and cloud computing are expected to be the company’s growth drivers.

For instance, AT&T Inc. (NYSE:T), which is a 10%-plus customer, has been aggressively deploying its LTE network and now covers 326 markets. Ma Bell intends to cover 270 million people by its LTE network this year, up from the previous expectation of 250 million. It will be investing a total of $40 billion over the next two years on infrastructure as it looks to catch up with leading LTE provider Verizon, which currently has 500 markets covered by LTE.

Carriers in the U.S. are expected to spend $90 billion by 2017 on LTE expansion and maintaining their networks. Given the fact that Ciena counts AT&T Inc. (NYSE:T), Verizon, and Sprint as customers, it is in a great position to benefit from telecom spending in the U.S.

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